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Robust bidding and revenue in descending price auctions

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  • Auster, Sarah
  • Kellner, Christian

Abstract

We study the properties of Dutch auctions in an independent private value setting, where bidders face uncertainty over the type distribution of their opponents and evaluate their payoffs by the worst case from a set of probabilistic scenarios. In contrast to static auction formats, participants in the Dutch auction gradually learn about the valuations of other bidders. We show that the transmitted information can lead to changes in the worst-case distribution and thereby shift a bidder's payoff maximizing exit price over time. We characterise the equilibrium bidding function in this environment and show that the arriving information leads bidders to exit earlier at higher prices. As a result, the Dutch auction systematically generates more revenue than the first-price auction.

Suggested Citation

  • Auster, Sarah & Kellner, Christian, 2022. "Robust bidding and revenue in descending price auctions," Journal of Economic Theory, Elsevier, vol. 199(C).
    • Handle: RePEc:eee:jetheo:v:199:y:2022:i:c:s0022053120300685
    DOI: 10.1016/j.jet.2020.105072
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    Cited by:

    1. Sosung Baik & Sung-Ha Hwang, 2022. "Revenue Comparisons of Auctions with Ambiguity Averse Sellers," Papers 2211.12669, arXiv.org.
    2. Sarah Auster & Christian Kellner, 2023. "Timing Decisions Under Model Uncertainty," CRC TR 224 Discussion Paper Series crctr224_2023_460, University of Bonn and University of Mannheim, Germany.
    3. Ernesto-Jesús Veres-Ferrer & Jose M. Pavía, 2022. "The Elasticity of a Random Variable as a Tool for Measuring and Assessing Risks," Risks, MDPI, vol. 10(3), pages 1-38, March.
    4. Balzer, Benjamin & Rosato, Antonio & von Wangenheim, Jonas, 2022. "Dutch vs. first-price auctions with expectations-based loss-averse bidders," Journal of Economic Theory, Elsevier, vol. 205(C).
    5. Sarah Auster & Christian Kellner, 2023. "Timing Decisions under Model Uncertainty," ECONtribute Discussion Papers Series 252, University of Bonn and University of Cologne, Germany.
    6. Omar Abbaas & Jose A. Ventura, 2024. "An Iterative Procurement Combinatorial Auction Mechanism for the Multi-Item, Multi-Sourcing Supplier-Selection and Order-Allocation Problem under a Flexible Bidding Language and Price-Sensitive Demand," Mathematics, MDPI, vol. 12(14), pages 1-30, July.

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    More about this item

    Keywords

    Auctions; Ambiguity; Consistent planning;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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